FocusAsia BD soars as arbitrage window to the US opens

08 March 2010 04:47  [Source: ICIS news]

By Helen Yan

SINGAPORE (ICIS news)--Asia butadiene (BD) prices are poised to rise as BD cargoes head to the United States where a spate of outages has fuelled a price upswing with spot values rising above $2,000/tonne (€1,460/tonne), traders said on Monday.

Traders in Asia paid more than $1,950/tonne FOB (free on board) to ship cargoes to the US where spot prices rose to 93-96 cents/lb ($2,046-2,112/tonne) last week, following a 6 cent/lb hike to 76 cents/lb for US March contract settlements, traders said.

With freight costs around $250-300/tonne for big parcels from Asia to the US, traders were betting that prices in the US would soar to around $2,300/tonne CFR by the end of April or early May. Shipment takes about six weeks from Asia to the US Gulf.

“It is big risk to take, but we expect US prices to increase as supply in the US is really tight and is expected to remain tight in April,” a trader said.

With the arbitrage window to the US opening, traders have put together two BD spot parcels in Asia, totalling some 9,000 tonnes, which will leave Asia for the US in mid and end March.

A 5,000 tonne BD parcel will leave Daesan, South Korea, 20-25 March, while another 4,000 tonne lot is expected to leave from Malaysia in mid-March for the US.

BD Spot offers in Asia for April shipments have risen to $2,050/tonne FOB Korea, following the deals done with traders at $1,950-2,000/tonne FOB basis for the arbitrage cargoes to the US.

However, resistance from the downstream synthetic rubber producers is mounting, with a major Korean producer saying that it would cut operating rates if the BD price was to continue to rise.

Butadiene’s main consumers are synthetic rubber producers including styrene butadiene rubber (SBR) and butadiene rubber (BR) makers. These chemicals go into tyre manufacturing. It is also used to make polymer resins.

“BD offers at $2,000/tonne and higher are unworkable and we will cut operating rates or shut down our plants if prices continue to rise,” a major Korean synthetic rubber producer said.

Spot BD prices surged to $1,900-1,950/tonne CFR (cost and freight) Asia last week, up $100/tonne from the week ending 26 February, according to global chemicals market intelligence service, ICIS pricing.

In the US, supply had been disrupted by a string of plant outages and turnarounds, fuelling the BD price upswing in the US, and stoking the risk appetite of traders in Asia.

Chevron Philips declared force majeure (FM) on US olefins last week due to an outage at one of its crackers in Sweeney, Texas. Another Chevron Philips cracker at Cedar Bayou in Texas was taken offline last week for a turnaround of nearly two months.

Eastman Chemical's 358,000 tonne/year cracker at Longview in Texas remained off line after an un-expected equipment breakage disrupted its start up on the weekend of 28 February. The cracker went down on 20 February following a power outage at the site.

Shell’s 626,000 tonne/year GO-1 Norco cracker in Louisiana was shut in the week ended 19 February for maintenance while Dow Chemical shut down its 610,000 tonne/year unit on 23 February due to a site-wide electrical malfunction.

($1 = €0.73)

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By: Helen Yan
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